Adelis Equity Partners Fund I AB and Adelis Equity Partners Fund II AB (the “Companies”), as part of their respective wider investment process and risk mitigation procedures, undertake extensive and tailored investment due diligence when evaluating potential investments and monitor each investment across a spectrum of risk-factors identified as relevant throughout its life time. The Companies recognize the need to consider sustainability risks, meaning environmental, social and governance (“ESG”) issues which, were they to occur, could have a material negative impact on the value of an investment, and may affect the risk-adjusted returns of an investment or a portfolio in different ways and to varying degrees depending on the specific investment. Where relevant to an investment, sustainability risks are considered as one factor among a number of other factors. The assessment of sustainability risks therefore forms part of the Companies’ wider investment decision-making process and reflects factors identified as relevant at the outset as well as factors which may become relevant due to changes in environmental or social conditions, changes in law or policy, market expectation, new information or research and other developments.
Sustainability risks are generally identified and evaluated as part of the broader investment due diligence process. The significance of sustainability risks to the investment proposition is assessed in the context of the relevant underlying asset, including its overall risk and return profile. Other relevant considerations may include the level of intended or actual control or influence exercised by the Companies over an investee company.
In identifying and assessing sustainability risks, the Companies use a number of methods, including (without limitation) investment analysis and direct engagement with investee companies and their management. As part of their investment analysis, the Companies seek to identify potential sustainability risks and any final investment recommendation to the investment committee will include analysis covering (among other things) relevant sustainability risks. At present, the Companies’ sustainability risk analysis emphasises potential environmental and climate, and related reputational and other, risks relevant to an investee company and its activities. Other categories of sustainability risk analysed by the Companies include evaluation of risks relating to an investee company’s environmental practices; natural resource consumption; compliance with basic requirements for good working conditions; policies and procedures with respect to mitigating corruption, bribery and financial and other irregularities; compliance with human rights law; dealings in controversial products and services; and governance arrangements regarding dealings with countries under applicable sanction law. Where relevant, suggestions or recommendations for improvements regarding the performance of an investee company in the above-mentioned areas may be incorporated into the pre-investment risk management analysis.
The Companies’ engagement with the management of investee companies varies depending on the level of control or influence exercised. Where the Companies have full ownership of an investee undertaking or a substantial asset, they will, in respect of ESG-related risks, seek to identify, influence and promote actions designed to potentially resolve or mitigate issues capable of causing a material negative impact on an investment as part of its overall risk management process. Where the Companies have limited influence (as a minority or non-controlling holder), they will seek, where appropriate and to the extent possible, to escalate sustainability risks to the management and/or majority owners to promote actions to resolve or mitigate applicable sustainability risks. The Companies typically require that investee companies set targets to seek to achieve in respect of sustainability matters, including company-specific objectives in respect of the CO2 footprint, and seek to ensure that the sustainability performance and sustainability risk of the investee company are discussed by the company’s board at least annually.
Identification of one or more sustainability risks alone will not generally preclude the Companies from pursuing an investment where such investment is otherwise assessed to meet the investment criteria, including where such sustainability risks can be appropriately monitored and managed. However, in circumstances where the sustainability risks are overwhelmingly detrimental to the potential performance of an investment, the Companies may cease to pursue the opportunity further. The Companies do not make investments in companies whose primary activities involve pornography and the sex industry, controversial weapons, or coal extraction and power generation. Aside from the foregoing, the Companies do not pre-emptively exclude specific investments, industries or sectors from consideration; instead, the Companies evaluate each investment on its merits in light of all of the factors that it considers relevant.
The Companies continue to monitor and adapt to prevailing market conditions and risks and may from time to time refine or modify its approach described above with respect to the integration of sustainability risks in response to such conditions and risks.